An Employment Law Puzzle: On Condonation, Pay Cuts, Consideration, and Waivers

Here’s an advanced employment law question that came up in discussions I’ve had in the course of writing my new book The Law of Work, which will be out next spring. It is for other employment law nerds like myself. There seems to be differing views on the answer, so I put it out there in case any practitioners, law students, academics, or other experts have an opinion. It involves the intersection between constructive dismissal, condonation, acceptance, mutual consideration, waiver, and promissory estoppel.
Bear with me as I set this up.Constructive Dismissal Basics: Acceptance and Condonation
Firstly, if an employer commits a fundamental or repudiatory breach of the employment contract, an employee may ‘accept‘ that breach, quit, and sue for constructive dismissal, which is a branch of wrongful dismissal law. That acceptance must occur within a reasonable time period, the length of which varies according to a variety of factors assessed by judges. See e.g. Farquhar v. Butler Brothers Supplies Ltd. (1998, BCCA).
Secondly, an employee who does not accept the fundamental breach within a reasonable time may be found by a court to have ‘condoned’ the breach, which

For Employment Law Nerds Only

bars the employee from electing to quit and claiming constructive dismissal. So, for example, if an employer cuts my pay by 25 percent, I can elect to treat that change as fundamental breach, quit, and claim constructive dismissal. The principal damages I would be seeking in that lawsuit of for financial loss resulting from the employer’s failure to give me proper notice of termination. However, if I don’t complain and instead just keep working for a period of time, the constructive dismissal case law says that I forfeit my right to quit and claim the wage cut constituted a constructive dismissal. I will have condoned the employers’ fundamental breach of my contract. Condonation is a bar to a constructive dismissal action.Mutual Consideration Necessary for a Contract Modification
Now consider a different area of contract law: the need for mutual consideration in order to modify a contract. That law tells us that even if I agree to a substantial change to my contract that benefits the employer (such as a big pay cut), that modification is not legally enforceable unless I have received new or ‘fresh’ consideration. There are loads of cases that stand for this proposition. Consider for example Francis v. CIBC, where the employee signed a written amendment to the contract that reduced the period of notice required to terminate her from “reasonable notice” to 3 months’ notice. A decade later, when she was fired, the court ruled that amendment was not enforceable since the employee had not received any new benefit at the time. In other words, signing an amendment and continuing to work under a modified contract does not fix the fatal deficiency of a lack of fresh consideration.
So my employer cuts my pay by 25%, but since I need a job, the job market is tight, and I have a family to feed, I keep working. What real choice do I have. But I’m pissed off. If I clearly voice my objection to the change, it is difficult to see how I can be found to have agreed to it. And indeed in cases like Wronko v. Western Inventory and the classic Hill v. Peter Gorman Ltd (1957, OCA) we all read in law school, the courts said that an employee who clearly rejects a change to an employment contract can later insist on the original terms, even if he remains in employment.
In Wronko, the court said, “the mere continuance by an employee in employment does not amount in law to an acceptance by an employee of a unilateral variation of his contract by his employer.” Correct. Normally, then, an employee who continues to work after a fundamental change to their contract imposed by the employer may be found to be barred from later quitting and bringing a constructive dismissal lawsuit, because they will have condoned the breach. However, the fact that they have waived their right to bring a constructive dismissal lawsuit does not mean they cannot still sue for breach of contract if the employer unilaterally cuts their pay without their agreement. Condonation is not a bar to a common breach of contract lawsuit.

But what if I do not loudly voice my disagreement to the employer’s unilateral cut to my pay. I just stay quiet because I fear that if I raise a fuss, the employer might just fire me, and I need a job. Say a year passes during which I’ve been receiving 25 percent less than what I was making under the original contract. In constructive dismissal law, I may be found to have condoned the breach and forfeited my right to quit and sue for constructive dismissal. However, I still received no fresh consideration in exchange for having my pay cut by a 25%. This was just a one-sided modification that benefited only the employer. So does my silence correct the problem of lack of consideration?

It is difficult to find discussion of this question in the case law. In none of the condonation cases I’ve read does the court address the question of lack of consideration flowing to the employee in the original unilateral amendment to the contract by the employer. That makes some sense, since at that point the employee is seeking damages for constructive dismissal so that action is pleaded in that way. However, an employee who quits in response to a unilateral cut to compensation could plead constructive dismissal and, in the alternative or in addition, breach of contract (since the change was made without new consideration). The damages being sought in the two claims are different: in the constructive dismissal action, the employee is seeking damages for loss during the period of notice that should have been given, whereas in the breach of contract action, the employee is seeking damages for the loss of pay suffered during the period the employee worked while the contract subsisted. An employee might lose the constructive dismissal claim because they have condoned the breach and therefore are out of time to bring that action, and yet still have a valid claim for loss suffered while the contract persisted.Waiver or Promissory Estoppel?
However, even this much is not clear. In cases like Wronko and Hill the court emphasizes that the employee consistently voiced their disagreement to the unilateral change throughout the remainder of the contract. This might suggest that an employee who just quietly seethes in response to the unilateral pay cut may someone lose their right to bring either claim, even though the pay cut came without fresh consideration. Seems to me the only basis for such a conclusion would be through the application of some form of waiver or promissory estoppel doctrine. In other words, the argument would be that the employee represented to the employer that it would not later insist on being paid according to the original contract and therefore has waived his right to sue for damages arising from the unilateral pay cut. The ‘representation’ would come in the form of silence, non-verbal objection to the fundamental breach of the contract by the employer. The employer made an argument like this in a case called Grimes v. Alberta (1997, Alta QB), but it was rejected on the facts in that case.
I have my doubts whether waiver or promissory estoppel could properly be applied to block an employee from seeking to enforce a compensation clause unilaterally amended to the benefit of the employer without fresh consideration. The vulnerability of the employee in such circumstances comes into play. However, if any of you employment law experts have thoughts on this, or know of case law that directly explores these issues, please pass them along.
My apologies to non-employment/contract law nerds.

Professor Doorey is an Associate Professor of Work Law and Industrial Relations at York University. He is the Director of the School of HRM at York and Director of Osgoode Hall Law School’s executive LLM Program in Labour and Employment Law and on the Advisory Board of the Osgoode Certificate program in Labour Law. He is a Senior Research Associate at Harvard Law School’s Labor and Worklife Program and a member of the International Advisory Committee on Harvard University’s Clean Slate Project, which is re-imaging labor law for the 21st century

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